The Bank of Israel Research Department released its April 2025 macroeconomic staff forecast, projecting baseline GDP growth of 3.5 percent in 2025 and 4.0 percent in 2026. Inflation is expected at 2.5 percent over the four quarters ending in the first quarter of 2026, with annual inflation of 2.6 percent in 2025 and 2.2 percent in 2026, while the average interest rate in the first quarter of 2026 is forecast at 4.0 percent. The baseline assumes the resumption of fighting in Gaza does not extend beyond the second quarter of 2025 and does not involve serious restrictions on domestic activity, and it incorporates the impact of United States import tariffs announced on April 2, 2025. The working assumption is that higher global tariffs reduce world trade volumes by 4 percent by end-2026, with the tariffs estimated to lower Israel’s GDP growth by about 0.5 percentage points in each of 2025 and 2026. The forecast also includes a government deficit of 4.2 percent of GDP in 2025 and 2.9 percent in 2026, and a debt-to-GDP ratio of 69 percent in 2025 and 68 percent in 2026, alongside a broad unemployment rate of 2.9 percent in 2025 and 3.2 percent in 2026. The Research Department characterised uncertainty as exceptionally high, with risks skewed to weaker growth and higher inflation, interest rates and deficits, and it outlined an alternative scenario in which a wider conflict and extensive reserve mobilisation for around two quarters would reduce 2025 GDP by 0.5 percent and raise the deficit by 2 percent of GDP, lifting debt to 71 percent by end-2025.

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